How Web-based casinos are beating the odds

March
4, 1999Webposted at 8:08 am EDT

by Kim S. Nash

ST. JOHN'S, Antigua (IDG) -- Here among the storefronts made of plywood
and painted ice-pop colors, there grows a strain of electronic commerce
that faces obstacles even Amazon.com couldn't imagine. Internet gambling
operators must gird their sites for multiple simultaneous users who pound
through rounds of blackjack and online roulette -- at 40, 50 and 60 clicks
per minute.

They also must support many languages besides English to attract players in Europe and Asia, where online betting isn't so legally iffy.

Perhaps most nettlesome are the financial transactions. Wire transfers, credit cards, bank drafts, personal checks, electronic currency, even cash: They all are forms of payment acceptable at one gambling site or another.

And Amazon.com doesn't have to worry about how to pay out $50,000 jackpots.

Hitting the jackpot

But as usual, the house is raking in the cash. Online gambling is a $535 million industry worldwide that's expected to grow to $10 billion in three years, according to Datamonitor PLC, a market researcher in London. An estimated 200 Web sites currently lure surfers to virtual slot machines, craps and other Las Vegas-style games.

There's just one problem: U.S. police say online gambling is illegal under a 38-year-old law -- and they're starting to prosecute. Moreover, the U.S. Congress is expected to outlaw Internet casinos outright.

So gambling entrepreneurs from the U.S., Canada, the U.K., Israel and other countries have set down roots on Caribbean islands, particularly this one. Antigua is one of just a few countries to legalize online gambling. In fact, Antigua invites it.

"Gambling provides revenue to the country but also employment and indirect economic benefits," said Vere Murphy, commissioner of the Free Trade and Processing Zone, which licenses and regulates Internet gambling companies here.

Murphy says he sees himself as something of a cybercop, enforcing licensing laws and chasing away lawbreakers. So far, he's collected $6 million to $7 million in license fees from the 32 online casinos and sports-betting sites he has sanctioned.

Terry Bowering has paid his $100,000 annual license fee to Antigua and scoffs at the idea that online casino executives run a crooked business, hide from the law or fleece naive Internet users.

For Bowering, vice president of offshore operations at Starnet Communications International Inc., Internet gambling is a legitimate form of electronic commerce that lawmakers just don't understand.

"We're pioneers. We're the future. We're sticking to a marketing strategy and a business plan," said Bowering, a 38-year-old former stock broker and financial consultant. "We're not typical bookies. We're MBAs."

Even so, Starnet, which is based in Vancouver, B.C., is careful to do all bet-processing and money transactions on servers here to guard against Canadian and U.S. police action.

Last year, Starnet's casinos group saw 6 million hits daily; the average spent per bettor visit was $200, he said.

Starnet wouldn't mind being a takeover candidate for land-based casinos: "Once the smoke clears, they will look at a company like us to get them online," Bowering said.

Each of the 14 gambling executives interviewed by Computerworld claimed to be bringing a businessman's order to the largely untested world of Internet wagering.

"We don't sit here drinking umbrella drinks," said Peter Bengtsson, managing director of Boss Casinos Ltd. "We deal with other people's money and must have backup procedures and a fire-safe area and strict rules. It's almost a bank."

For example, some companies have hired Big 5 accounting firms to sign off on their business plans and certify, as best they can, that the software is fair to players. English Harbour Casino Ltd., on the southern tip of the island, uses Deloitte & Touche LLP, while Boss Casinos employs PricewaterhouseCoopers.

Playing by the rules

Meanwhile, Starnet and rival Inland Entertainment Corp. in San Diego, which runs three online casinos, like to point out that they're publicly traded firms that must report detailed company data.

Starnet, for example, posted $1.8 million in sales for its most recent quarter and showed $248,000 in profit. Inland isn't profitable yet.

Managing risks -- financial, legal and security -- is what the business is all about. Bengtsson, a 30-year-old ex-blackjack dealer in banker's clothes, runs Boss Casinos, which is one of the biggest online gambling operations here. The company, which has headquarters in Sweden, employs 30 people locally, mostly in telephone support and risk analysis.

Boss Casinos moved into a snow-white, five-story building -- one of the tallest in this capital city -- after Hurricane Georges blew the roof off its former quarters in September. Operations were down for more than two days.

In the new locale, Bengtsson plans to set up a locked and guarded server room in which to house six Sun Microsystems Inc. servers, one for each of the gambling sites he runs for other companies.

"Security we take quite seriously," Bengtsson said. The credit card, passport and other data requested of players "never leaves this building. All staff is cleared by Interpol," he said. Gun-toting local police also watch the premises 12 hours a day.

The four information technology people at Boss Casinos all are transplanted Swedes. "We tried to recruit from locals but they don't have the skills," Bengtsson said.

Cost of doing business

Software development costs are the biggest expense for Internet gambling firms. GLC Ltd., which does business on the nearby island of St. Kitts, has spent $20 million in the past three years to set up its GalaxiWorld online casino, said Larry Weltman, chief financial officer at the company in Gibraltar, U.K.

Hiring programmers well-versed in Sun's Java language is expensive but worth it, according to Weltman, 37. Instead of having to download fat software files before playing, users spend one to three minutes installing various Java applets, he said.

More than 1,200 registered players placed $3.1 million worth of wagers in GalaxiWorld's first month in action. Page hits totaled 3.2 million.

"You play my game, and it's a real live transaction taking place," he said. That's different from Amazon.com, where "one customer buys two books, and it may [take] two or three weeks to deliver," added Weltman, a former lottery company manager.

"We gotta be fast. There are too many other choices out there for players," he said.

Nash is a Computerworld senior editor. Her E-mail address is kim_nash@cw.com.